The booming equity market rally since the pandemic is augmenting the real economy as well, with a one percent rise in market capitalisation leading to 0.06% rise in the GDP growth rate.
An SBI Research note authored by Group Chief Economic Adviser Soumya Kanti Ghosh on December 23 underscored that a higher market capitalisation signals a robust economy as well as investor confidence, which in turn drives overall economic growth.
Savings Finding its Way into Equities
Since 2021, on an average, around 3 crore demat accounts were opened every year, with nearly 25% of investors now being women. This fiscal, the number of demat additions may cross the 4 crore mark. This trend indicates capital market emerging as a major channel in the financialization of savings. Now, over 80% of adults have a formal financial account in India, as compared to around 50% in 2011, the RBI report said. This, in turn, has improved the rate of financialisation of household savings. India's savings rate as percentage of GDP stands at 30.2% as of FY24, which is higher than the global average of 28.2%.
The report recalled that Delhi (29.8%), Maharashtra (27.7%) and Tamil Nadu (27.5%) have shown the maximum female representation than pan-India average of 23.9% so far this fiscal.
Household Savings Funding India Inc
As part of financial savings, the share of bank deposits is falling, the report showed, and other avenues of investment like Ulips, mutual funds, PPF and provident funds are emerging. The savings of households in 'shares and debentures' has increased to around 1% of GDP in FY24, from a mere 0.2% in FY14, said the report, showing that Indian households are now help fund the capital requirement of listed corporates. The age profiling of those investing in equity markets has shifted to a younger demographic, said the report citing Sebi data.
Funds raised by Indian Inc through the capital markets increased more than 10-fold from Rs 12,068 crore in FY14 to Rs 1.21 lakh crore in in FY25, till October. The market capitalisation of NSE-listed companies rose by more than six-fold to Rs 441 lakh crore in FY25 till October, as compared to a decade ago.
Another strong correlation was that states that saw higher share of Direct Benefit Transfers (DBT) were also among the states showing higher growth in registered investors.
SIP Surge
The SIP contribution to mutual funds this fiscal is set to scale to a new record, and is already nearing last year's mopup of Rs 1.99 lakh crore as compared to 0.67 lakh crore in FY18. The new SIP registeration has risen by four-fold since FY18 to 4.8 crore, the report said.
In terms of gross mutual fund inflows, the note said the dominance of Mumbai and Western India as the primary source of funds is gradually declining, with retail participation in financial markets through the indirect route rising from cities like Bengaluru, Hyderabad and Kanpur. These cities saw participation via direct mutual funds overtake indirect funds.
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